(Reuters) - U.S. cotton futures extended their gains to a three-week high with a number of factors contributing to the rise, including dry weather worries, talk of renewed Chinese buying, and a steep decline in the dollar.
Dealers were on watch for the U.S. Department of Agriculture's monthly crop report, due Thursday at noon EDT, which will include updated forecasts of U.S. supplies in 2013/14 and global consumption for the current crop year.
Record global stocks are expected to continue to grow as China builds its strategic reserves, though supplies outside the top textile market have been seen tightening.
The benchmark December cotton contract on ICE Futures U.S. ended with healthy 0.81 cent gains at 86.79 cents per lb, near the session high at 86.89, a level last seen on June 19.
"We've got some (USDA) reports coming tomorrow and there are a lot of ideas of new Chinese buying," said Jack Scoville, vice president at The PRICE Futures Group in Chicago.
Strong Chinese demand has boosted cotton prices throughout the 2012/13 crop year which ends on July 31.
"Plus, the dollar weakened tremendously," Scoville added. "And the Fed is implying that things are getting better around here, which could help with demand."
The dollar tumbled against the euro and yen, after the minutes from the Federal Reserve's latest policy meeting dented expectations of a near-term reduction in stimulus by the U.S. central bank.
The dollar had rallied to three-year peaks against a basket of major currencies on Tuesday on bets the Fed may start slowing its $85 billion-a-month bond purchases as early as September, but the minutes from the Fed meeting suggested that might not be a sure bet.
Even as consensus built within the Fed in June about the likely need to begin pulling back soon on economic stimulus measures, many officials wanted more reassurance that a recovery in the labor market was on solid ground before changing policy measures.
Concerns that hot and dry weather may damage crops in Texas, the top U.S. grower, contributed to cotton's gains.
A weekly U.S. government crop progress report released late Monday showed this year's cotton crop is in worse condition than the previous two years.
(Reporting by Carole Vaporean; editing by Matthew Lewis)
